S&P's thumbs up to Luxottica

Luxottica Group S.p.A. has seen its performance backed up by rating house Standard & Poor’s, which has re-affirmed its long-term credit rating of BBB+ and revised its outlook from 'stable' to 'positive'. “The ratings on Luxottica continue

to reflect our view of its ‘strong’ business risk profile, as our criteria define the term, supported by a leading position in the fast-growing eyewear industry. We also factor in our assessment of the group's financial risk profile as "intermediate," underpinned by solid free cash flow generation and moderate credit metrics,” summarised S&P’s in a research note issued on March, 27.

Standard & Poor’s announced that the outlook change follows a second straight year of robust operating results, with Luxottica posting double-digit growth in sales and earnings in 2012.

“We assess Luxottica's business risk profile as strong owing to the eyewear industry's fragmented competition, strong growth prospects, low market penetration, and huge untapped potential, especially in emerging markets.”

As pointed out by the analysis team at S&P’s, the BBB+ rating on Luxottica reflects its sound business, supported by a leading position in the fast-growing eyewear industry. The rating also reflects Luxottica’s proven ability to generate solid free cash flow, with a new record posted in 2012 of over 700 million euros.

Luxottica has a strong business profile

Overall, Standard & Poor’s assessed Luxottica’s business risk profile as strong owing to the eyewear industry’s fragmented competition and strong growth prospects, especially in emerging markets. Luxottica is well placed to seize on that untapped potential thanks to its vertically integrated business model and solid profitability, with a reported EBITDA margin of about 19 percent in 2012.

“Luxottica has a solid and protected portfolio compared with peers'. A substantial proportion of group sales are through house brands, and prices are well diversified, ranging from 80 euros to 200 euros per frame with a focus on the middle of the range. We consider Luxottica's vertical integration to be of equal importance for its business risk profile.”

Despite being highly supportive of the Italian eyewear giant, Standard & Poor’s flagged some downs that the company might be aware of for the coming months. “On the downside, we believe Luxottica faces some earnings volatility owing to its exposure to the luxury and sunglasses market segments, which are less predictable than the prescription market. For this reason group revenues and margins declined during the 2009 downturn, and, while sales have since recovered markedly, profitability indicators, albeit on the rise, are still lagging slightly below 2008-2009 levels.”